Outsourcing/Procurement Management Presentation for PPMP20007 Course

This presentation, prepared by a group of students, provides a comprehensive overview of outsourcing and procurement management. It begins with an introduction to outsourcing, its merits, and demerits, followed by a discussion on Request for Proposals (RFPs) and contractor selection processes. The presentation explores best practices in outsourcing, the art of negotiation, and different types of contracts, including fixed-price, cost-plus, and time & material contracts. It also examines contract types suitable for Agile projects, such as target cost and incremental delivery models, and the 'point of total assumption' (PTA) within Fixed-Price Plus Incentive (FPPI) contracts. The presentation includes calculations for PTA and concludes with key takeaways, emphasizing the importance of planning, negotiation, and appropriate contract selection for successful outsourcing projects. References and member contributions are also included.

PPMP20007
Group Presentation
ID & Name of Student 1
ID & Name of Student 2
ID & Name of Student 3
Outsourcing/Procurement Management

Introduction
• Purpose
• To develop knowledge about:
• Outsourcing, merits & demerits
• Brief about RFP & contractor selection
• Best practices in Outsourcing
• Art of Negotiation
• Different types of contract & risk
• Contract type for Agile
• Point of Total Assumption

What is outsourcing
• Giving part service to other
• Giving part order delivery to other (GEP, 2019)
• Get the experts usually not available
• Transferring some work to other
• Transferring risk to other
• It is a type of alliancing

Advantages of outsourcing
• Saves time of procurement
• Saves cost of project
• Improve quality of service & product (GEP, 2019)
• Improve customer satisfaction
• Improve Flexibility of project management

Disadvantages of outsourcing
• Continuity risk of service & supply
• Possible delay can hamper whole project
• Less control over the item (Purchasing&ProcurementCenter, 2017)
• Additional resources required to monitor supplier
• Integration with project a challenge

What is an RFP
• Document that define project’s need
• Need is related to the outsourcing
• Document asks for the possible solution
• Document provide information to solution provider
• Solution provider can submit proposal accordingly
• Project specification (time, cost, technical) provided

What is involved in selection of a
contractor
• Determining and documenting need (Thakur, 2019)
• Develop screening criteria
• Publish to market requesting for proposal
• Receival and review of proposals
• Evaluation and negotiation with supplier
• Finalisation & award of contract

Best practices in outsourcing project
work
• Development of need very specifically
• Define all the project limitations clearly
• Define & publish conflict management plan (Hoover, 2016)
• Develop more transparency
• Develop fair contract to avoid conflict

Art of negotiation
• Develop relationship & bonding with party (Entrepreneur, 2019)
• Always be focused to develop win-win
• Respect other & listen to all
• Conduct proper homework and planning
• Execute the event as per plan
• Show leadership skill

Different types of Contract
• Fixed-Price Contract
• Plus Price (FFP) (Tjcornish, 2009)
• Plus Incentive (FPPI)
• Cost Plus Contract
• Plus Fee (CPF)
• Plus % (CPPC)
• Plus Incentive (CPIF)
• Time & Material

Risk from Contractor Perspective
• Fixed-Price Contract
• Need to assume and bear risk (Frick, 2013)
• Cost Plus Contract
• Enjoy benefit of getting overheads
• Time & Material
• Cost escalation not be borne

Risk from Customer Perspective
• Fixed-Price Contract
• No risk
• Cost Plus Contract
• Risk of overheads & overruns (Rodriguez, 2018)
• Time & Material
• Cost escalation need to be borne

Appropriate Contract type for Agile
project
• Target Cost
• Fixed cost Plus Incentive for delivery (Naughter, 2018)
• Overheads are calculated in advance
• % of overheads fixed in advance
• Incremental Delivery
• Longer projects are broken into pieces
• Terms of payment for piecewise
• Performance based payment
• T&M (Time & Material)
• Paid for time spent for delivery
• Paid for the material used

What is the “point of total
assumption”
• Only applies for FPPI contract
• Beyond PTA will be seller’s risk (Bansal, 2014)
• Ceiling price & share are important
• Performance of seller matters for profit
• Seller bears risk up to a point
• Point is Ceiling Price

How to calculate “point of total
assumption”
• (Ceiling price – Target price) of buyer = A
• Buyer’s ratio of share = B
• Target cost of seller for selling = C
• PTA = (A ÷ B) + C (Prakash, 2019)
• Buyer’s Share is up to Ceiling Price

Conclusion
• Outsourcing is beneficial but with planning
• RFP need proper need identification
• Conflict management should be in RFP
• Always negotiate for win-win
• Fixed-Price is for buyer & Cost-Plus for seller
• Target, Incremental, & T&M are for Agile Contract
• PTA is good for performer sellers

Any Question
• Difference between RFP & RFI?
• Why “Negotiation” is necessary in Contract?
• Does Buyer’s share has importance in PTA?

References
• Bansal, S. (2014, June 26). What Is The Point Of Total Assumption (PTA) ? Retrieved April 18,
2019, from www.izenbridge.com: https://www.izenbridge.com/blog/pmp- exam-point-of-
total-assumption/
• Entrepreneur. (2019). 5 Steps to Master the Art of Negotiation. Retrieved April 18, 2019, from
www.entrepreneur.com: https://www.entrepreneur.com/article/253074
• Frick, D. E. (2013). Risk in Fixed-Price Contracts. Defense AT&L. Retrieved from
https://apps.dtic.mil/dtic/tr/fulltext/u2/a608682.pdf
• GEP. (2019). Procurement Outsourcing FAQ. Retrieved April 18, 2019, from www.gep.com:
https://www.gep.com/procurement-outsourcing/procurement- outsourcing-faq
• GrantSpace. (2019). What is an RFP? Retrieved April 18, 2019, from https://grantspace.org:
https://grantspace.org/resources/knowledge-base/rfps/
• Hoover, A. (2016). Outsourcing: Managing Interorganizational Relations. Retrieved April 12,
2019, from https://slideplayer.com/slide/9215623/

References
• Naughter, T. (2018, June 26). Three Types of Agile Contracts. Retrieved April 18, 2019, from
www.contractworks.com: https://www.contractworks.com/blog/three-types-of-agile- contracts
• Prakash, V. (2019). Point of Total Assumption Calculations on PMP Exam. Retrieved April 18, 2019,
from www.pmchamp.com: https://www.pmchamp.com/point-of-total- assumption-
calculations-on-pmp-exam/
• Purchasing&ProcurementCenter. (2017). Outsourcing Procurement – Benefits vs Problems.
Retrieved April 18, 2019, from www.purchasing-procurement-center.com:
https://www.purchasing-procurement-center.com/outsourcing-procurement.html
• Rodriguez, J. (2018, October 1). All About Cost-Plus Contracts. Retrieved April 18, 2019, from All
About Cost-Plus Contracts: https://c/all-about-cost-plus-contract-basics-plus-4-more-
options-844913
• Thakur, S. (2019). Process Flow Diagram for RFP Process. Retrieved April 18, 2019, from
www.brighthubpm.com: https://www.brighthubpm.com/project-planning/122326-using- a-
diagram-to-demonstrate-the-rfp-process/
• Tjcornish. (2009, February 13). Project Management For Good Procurement Practices. Retrieved
April 18, 2019, from www.slideshare.net: https://www.slideshare.net/tjcornish/Project-
Management-for-Good-Procurement-Practices

Member Contribution
• Member 1:
• Slide 2 to Slide 6 & Q1
• Introduction to what is RFP
• Member 2:
• Slide 7 to Slide 11 & Q2
• Selection of Contractor to Risk in each Contract
• Member 3:
• Slide 12 to Slide 16 & Q3
• Risk in Contract to Conclusion